Target Markets Attendance Breaks Last Year’s Record: Here’s What the Buzz Is About

Target markets are the place to be right now — and capital and technology providers are flocking to the segment.
By: | October 8, 2019

A record 900-plus program administrators (PAs) and around 60 carriers are expected to descend on Scottsdale, Ariz. for the 19th Annual Target Markets Program Administrators Association (TMPAA) Summit, held October 20 through 23 — and there’s a reason numbers continue to swell: Business is booming.

PAs are specialists in niche, or target, insurance markets or classes that typically underwrite on a delegated authority basis, often structured as managing general agents (MGAs), distributing products on behalf of carriers via retail or wholesale channels while fulfilling a range of additional functions from binding, issuing and billing to claims management and loss control.

Once at the fringes of the insurance industry, this is now big business, with growth in programs far outstripping that seen in the broader market. According to TMPAA, U.S. program premiums are projected to beat the $36.1 billion record set by the segment in 2017, more than double the $17.5 billion written in 2010.

“The programs market is thriving,” said Claudia Carnevale, senior vice president of Allied World’s U.S. program division, adding that recent specialty insurance rate rises are further fueling the boom.

“We are seeing organic growth as a result of market correction, as rates have increased in response to inflation and rising loss costs,” she explained.

“The MGA space continues to be the place to be,” added Noelle Collado, vice president of specialty programs for Nationwide.

For carriers, PAs offer specialist underwriting expertise, help them diversify their distribution networks and build a foothold in lines of business in which they may be unwilling or unable to develop in-house.

“For AIG, it’s where the vast majority of our SME business is written,” said Chris Flatt, head of U.S. programs for the insurance giant, which he said continues to “carefully and methodically expand” the AIG brand and products through PAs.

Growth Markets

Target markets also offer fertile grounds in which talented underwriters can make their name and manage significant volumes of business.

“The program space fosters innovation, customization and speed to market. For those with a strong entrepreneurial instinct, it’s a tremendous career option,” said Flatt, though, working for a start-up PA can be demanding, requiring underwriters to wear many operational hats.

Cristopher Pesce, president, Maritime Program Group; president, TMPAA

For some of these businesses, the ultimate aim is to be acquired by a bigger insurer or broker, and consolidation is rife. However, according to Cristopher Pesce, president of Maritime Program Group and president of the TMPAA, the total number of PAs tends to hold steady year-on-year.

“That tells me for every program that gets acquired, there’s an entrepreneur starting up something new and making a go at it,” he said.

“There’s still so much capacity in the marketplace that needs to be deployed. If you’ve got a good strategy and business plan, there will usually be a carrier willing to take a look at it.”

According to Pesce, two of the hottest target markets are cyber and cannabis: “In emerging industries like this, PAs must develop a unique approach to underwrite profitably so that the business is both attractive to a carrier while also financially viable for entrepreneurs in that space.”

Indeed, this is where PAs truly earn their keep, using their nimbleness and growing tech capabilities to seize on opportunities, from offering insurance solutions in distressed segments to tackling emerging risks.

“MGAs are often the first place where new products emerge. They tend to be on the forefront of product innovation as they move away from traditional products where there is less upside,” said Collado.

She highlighted micromobility, gig economy, on-demand, cryptocurrency, transactional risk, cyber and climate as just some of the emerging risks ripe for program specialists and added that the future growth outlook is made even more promising by technology creating new insurable risks all the time.

Customer-Centric Tech

Technology is also increasingly important for PAs themselves, allowing them to not only operate more efficiently but also offer more customer-centric products.

“Even if you are not a direct-to-consumer PA, there’s a good chance that you have a tech-enabled consumer-facing portal simply to enhance customer experience and improve the product,” said Pesce.

“Technology is a much bigger part of the value package a PA offers to carriers and brokers today,” he continued. “Technology is hugely enabling when done right, but it’s hard to get it right. With tech getting ever more accessible, that puts pressure on PAs to continue to lead the charge.”

Whereas a decade ago, a PA’s success was largely determined by its underwriting expertise, PAs today also have to be “technology gurus, or at least know how to manage those who can run your technology platforms,” Pesce said.

Much of the insurtech innovation to date has occurred in highly commoditized personal and small commercial lines where little specialist underwriting expertise is required — precisely the kind of business PAs and MGAs seek to avoid.

Jennifer Torneden, head of programs, Aon

However, noted Carnevale, “access to improved data analytics is key to identifying those segments within a class of business that may need additional rate adjustments for long-term sustainability,” and as well as equipping PAs to make better underwriting decisions, technology also allows them to automate certain tasks, reducing costs and enabling them to deliver fast, reliable customer service and unprecedented transparency to insureds.

With PAs harnessing new and improved technology all the time, “the program business model is more appealing than ever to all parties in the value chain,” argued Nationwide’s vice president of brokerage, Heather Schenker.

However, technology does not come for free, and smaller PAs may struggle to compete over time as larger players develop their capabilities and embark on strategic tech partnerships; as Carnevale noted.

Insurtech and industry consolidation are already changing the dynamics of the business.

“The MGA-in-a-box concept has emerged where experts in a certain space provide product knowledge but are seeking a one-stop shop for financial backing, technology and administration,” she explained.

In fact, Pesce suggested it may become harder to distinguish between PAs and insurtech firms in a few years.

“PAs are really well-positioned to help insurtech startups bring product to market because they have the expertise that makes them credible to the carriers, access to capital and distribution,” he said.

 A Vital Cog

The relationship between PAs and carriers is evolving, with a long-term focus.

One challenge: PAs must innovate and differentiate while continuing to attract capital from quality carriers. It is imperative, then, that PAs “make a conscious decision to disrupt themselves or be disrupted by competitors in the areas of tech, sales, service, marketing, claims, rate/quote/bind process, customer segmentation and building new programs,” said Jennifer Torneden, head of programs, Aon.

However, she has no doubt that the perceived value of PAs that do things well will only continue to grow: “Underwriting management is the most important value proposition for the distribution model of the future.

“Creating value in new products, evolving distribution channels, forging new tech partnerships, great customer service — this all starts with successful underwriting management.” &

Antony Ireland is a London-based financial journalist. He can be reached at [email protected].

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